Half-year Report

28 November 2018

Findel plc ("Findel" or "the Group")

Interim Results for the 26 weeks ended 28 September 2018

First-half performance driven by strength of online value retail offer

Findel, the online value retail and education supplies business, today announces its Interim Results for the26-week period ended 28 September 2018.

Financial Summary

* this is an Alternative Performance Measure for which a reconciliation to the equivalent GAAP measure can be found below.^ the results for the prior period have been restated to reflect the adoption of IFRS 15 Revenue from Contracts with Customers - see note 2.

First half highlights

· Adjusted profit before tax* on a constant-GAAP basis* for H1 up by 10.8% (2.3% on a reported basis).

· Our largest business, Express Gifts, trading as online value retailer "Studio", continues to show growth in customers and revenue;  

o Active customer base now at 1.9m, up from 1.8m at the end of March 2018; new and repeat customers attracted by clear online value proposition, with clothing performing particularly strongly

o Product revenue growth up 1.2% in H1, impacted by changes to marketing activities due to the implementation of the Financier platform in early October 2017

o Product sales in the 10 weeks to 23 November 2018 are up 12% vs. prior year

o Increase in online customer ordering on a rolling 12-month basis to 72% (12 months to September 2017: 66%). Over 88% of new customers placing their first orders online (September 2017: 79%) 

o Strong performance post period end; record trading levels in the three weeks to Black Friday

o Financial services performing slightly ahead of plan, income up 8.7% in H1, with 58.0% of accounts generating financial income in the last year, up from 52.5% at September 2017  

o Underlying bad debt levels stable with reported numbers impacted by the timing and quantum of debt sales in the prior year and the first-time adoption of IFRS 9

· The operational turnaround of Education is proceeding in line with our plans;

o H1 revenue down 4.4%, with the anticipated loss of sales from the Sainsbury's "Active Kids" scheme offsetting moderate year-on-year growth from the core business

o Core UK customer base up 5% in the 12 months to September 2018

o Online ordering levels have increased from 26% at September 2017 to 52% in September 2018, aided by lower price proposition for online orders only

o Classmates own-brand successfully rolled out, with equivalent sales up 7.7%

o Operational cost savings of £0.9m in H1 achieved

· Core net debt* of £80.9m at half year reduced by £9.1m vs. September 2017;

o Customer refund programme at Express Gifts nearing completion and proceeding to plan with total cash outflow of £5.1m in H1

o Express Gifts securitisation facility recently increased to £185m, up from £170m, to accommodate sales and receivables growth

o Both the securitisation facility and the revolving bank facility have been extended to 31 December 2020

Current trading and outlook

After a quieter Q2 period, trading in the last 10 weeks has been strong and in line with our expectations. Sales have been driven by Express Gifts' most successful ever Black Friday campaign, and total revenue for that business has increased by 7.7% YTD. Education continues to perform in line with its plans, with the balance of the year focused on improving margin and customer recruitment.

Our strategy to grow the Studio customer base and increase our customers' spending with us, particularly on clothing ranges, supported by our flexible credit offer, is working and provides the basis for sustainable medium-term profit growth.

Studio is focused on delivering outstanding value to its customers online. The same approach has now been adopted by Education as part of its turnaround.

Our expectations for the full-year and the medium-term remain unchanged.

Phil Maudsley, Group CEO, commented:

"This has been a period of continued progress and profit growth, driven by Studio's hugely attractive customer proposition as a digital first, value retailer.

"In particular, I am delighted to have seen more customers than ever choose to shop with Studio. More and more new customers are now recognising our incredible value, while our existing customer base are shopping more frequently and across an increased range of products.

"In Education too, we continue to make operational progress as the turnaround of that business performs to plan.

"We have been pleased with the start to the second half, buoyed by a record-breaking Black Friday period, and we are well placed as we head into Christmas. Our expectations for the full year remain unchanged."

Enquiries

Findel plc 0161 303 3465

Phil Maudsley, Group CEO

Stuart Caldwell, Group CFO

Tulchan Communications 020 7353 4200

Catherine James

Will Smith

Notes to Editors

The Findel group contains market leading businesses in the UK online retailing and education supplies markets. It is primarily a retailer and distributor, handling and supplying specialist products manufactured by third parties.

The Group's activities are focused in two main operating segments:

· Express Gifts - a leading UK online value retailer, primarily trading via the Studio brand; and

· Education - the second largest listed independent supplier of resources and equipment (excluding information technology and publishing) to schools in the UK and overseas.

INTERIM MANAGEMENT REPORT

Summary

This has been another period of good progress for the Group, with Express Gifts and its Studio brand building on its customer growth and attractive market position as an online value retailer to deliver improved profits. Education is seeing growth in its core UK customer base for the first time in many years as it also moves more of its proposition towards online and value.

The cash generation of the business has improved during H1 as legacy outflows ease, allowing the businesses to focus on the future.

The guidance for the full-year outturn for earnings and net debt* remains unchanged, which provides a strong platform for the medium-term prospects for the Group.

Express Gifts

Express Gifts is our core online value retail business, primarily trading under the Studio brand. Its strategy for medium-term growth has three core elements:

· Improving retail profitability;

· Maximising the financial services opportunity; and

· Building strong foundations for the future.

Retail profitability

Growth in retail profitability in the medium-term will be driven by increasing the size of the customer base, increasing the frequency of orders from established customers and from improving margins. We continue to make progress, with the customer base growing to 1.9m active customers, up from 1.8m at the end of FY18.

This growth in the customer base reflects the attractiveness to UK consumers of Studio's value-led and digital-first offer. It also demonstrates the success of our data driven marketing techniques and flexible credit offer, designed around the requirements of our target customers. We remain confident of growing the customer base to over two million in the next 1-2 years.

The strengthening of our product offer, especially in frequently-purchased categories such as clothing, underpins our focus on retention as customers continue to choose to shop with us more frequently. While we are particularly encouraged that 1.3 million of our 1.9 million customers are now buying clothing from us, this category still only represents c.30% of total sales, giving significant opportunity for further growth.

Alongside this, it is the use of our flexible credit product which helps to encourage customer loyalty and bring customers back to the website more regularly.

The timing of marketing activity in September and October 2017 was changed to accommodate the successful implementation of the Financier platform for financial services at that time, with a one-time acceleration of spend into September 2017. The marketing programme has reverted to a more normalised pattern in the current period, meaning that marketing costs in H1 were £3.3m lower than the prior period. This contributed to a more moderate level of product sales growth of 1.2% in H1. As we noted in our trading update on 17 October, these timing differences have now normalised and the rate of YTD product sales growth has accelerated to 6.2%. Sales over the 10 weeks leading up to Black Friday have increased by 12%.

Product gross profit margin % narrowed by 50bp in H1 against the equivalent period in FY18, but this was primarily due to the loss of £1.1m of contribution from our former subsidiary Kleeneze, who continued to use Express Gifts' distribution facilities until August 2017. We continue to expect an improvement in the product gross margin % for the full year, supported by our foreign exchange hedging strategy that fully covers planned direct foreign purchases for the next 12 months on a rolling basis.

Our marketing activities remain primarily focussed around catalogues, both for recruitment and prompting established customers to return to the Studio.co.uk website to browse and place orders. However, we are making increased use of television, social media and other digital channels to promote products and highlight the value in our ranges. Online ordering levels have continued to increase over the period, now standing at 72% on a rolling 12-month basis, up from 66% at September 2017.

Financial Services

The flexible credit option, which allows customers to pay for their goods over an extended period, remains an attractive element of the overall customer proposition. Financial services revenues increased by 8.7% vs. the prior year, with the total number of customers with a credit account who revolved a balance and generated financial services income in H1 increasing from 52.5% to 58.0%. In addition, over 88% of new customers are now placing their first orders online (September 2017: 79%).

Reported bad debt charges increased by £4.0m to £13.9m. The business has adopted IFRS 9 for the current period to calculate its bad debt provision, which means that there is an adverse distortion of c.£0.8m compared to the prior year which used an IAS 39 methodology. The new accounting standard requires us to adopt a 12-month assessment period for possible future losses, compared to the incurred loss approach taken under IAS 39. Our collections process continues to sell non-performing receivables to third-parties at certain points in the year. The point at which such receivables are normally sold was shortened in H1 of the prior year due a change in strategy, which benefited last year's H1 charge by approximately £2.5m. The underlying bad debt charge, after taking account of both the adoption of IFRS 9 and the impact of the change in debt sale strategy in the prior period, remained stable during the period.

The new financial services customer account platform, Financier, was implemented at the start of October 2017, as noted above. We have started to see some of the benefits of this versatile platform in H1, with pilot-scale trials of new credit products run over the summer period. Further trials are currently underway. We have also introduced changes to the application process to capture details of a customer's income, improving the assessment of a customer's ability to pay, as we continue to put the customer at the heart of what we do. This process will be refined over the coming months as part of a broader update to our application and credit decisioning processes that should come on stream next autumn. Until then, it is likely that the conversion of new applicants will reduce, so we will divert more of our marketing towards encouraging established customers to shop, with slightly less focus on new customer recruitment.

Strong foundations

This important element of our strategy covers a number of areas, including investment in our warehousing operations' resilience and improving our HR and training processes ahead of the introduction of the Senior Manager & Certification Regime to consumer credit businesses in December 2019. We have undertaken a detailed review of departmental structures during the last few months and invested in headcount to modernise and upskill certain areas after the business's rapid expansion in recent years and transition towards being a pure-play online retailer.

The strategy is also focused on ensuring that our key IT systems are capable of harnessing the vast quantities of product data, shopping data, repayment data and customer service data that we currently have, in order to improve the customer experience and increase profit, whilst also keeping customer data secure. Many of the key IT systems needed for this are now in place. One of the final pieces is a robust customer relationship management system, so we are planning to implement the Salesforce platform during 2019.

Financial results

Total revenue increased by 3.4% to £180.7m in H1 with gross profit increasing by 0.5% to £83.0m. The reduction in marketing costs driven by timing differences noted above were offset by the increased investment in headcount and additional £0.8m of costs associated with an anticipated reduction in VAT recovery on marketing costs. Depreciation increased by £0.7m, primarily due to the Financier system, which became operational in October 2017. Overall, the business produced an adjusted operating profit* for H1 of £14.7m, down from £15.7m in the prior year.

Education

Education is one of the largest independent suppliers of school and early years resources to schools in the UK and overseas. After changes to key aspects of its operational strategy during FY18, its operational turnaround is now performing in line with our plans.

Our objective is to reverse the impact of several years of losing market share by using a combination of value, service and improved digital tools. Its UK customer base grew by 5% in the 12 months to September 2018 with online ordering levels increasing from 26% at September 2017 to 52% at September 2018. Total revenue fell by 4.4%, but this was distorted by the anticipated loss of sales from the Sainsbury's "Active Kids" scheme this year. Excluding the impact of lost "Active Kids" sales, underlying revenue growth was 0.8%, despite a significant level of investment in price reductions for online purchases to incentivise customer recruitment and online ordering. This investment led to the gross profit margin % falling by 250bp in H1, although this is expected to narrow by the end of the year as benefits from supply chain renegotiations and range rationalisation are realised.

The business has streamlined its head office operations and focused them on a rapid transition to online ordering and browsing, which particularly affects the IT, marketing, sales and customer service functions. These cost savings helped to produce an operating profit of £2.2m in H1, down from £3.3m last year.

We remain confident that the strategy adopted in FY18 will improve the prospects for the business over the next 2-3 years.

Central

Central costs reduced by £2.6m compared to the prior year. Underlying costs were broadly unchanged, with the benefit mainly arising from the non-recurrence of unrealised foreign exchange losses relating to the revaluation of Group's Far-East operations in the prior year.

Current trading and Outlook

After a quieter Q2 period, trading in the last 10 weeks has been strong and in line with our expectations. Sales have been driven by Express Gifts' most successful ever Black Friday campaign, and total revenue for that business has increased by 7.7% YTD. Education continues to perform in line with its plans, with the balance of the year focussed on improving margin and customer recruitment.

We will provide a further update on Christmas trading at the end of January.

Our strategy to grow the Studio customer base and increase our customers' spending with us, particularly on clothing ranges, supported by our flexible credit offer, is working and provides the basis for sustainable medium-term profit growth.

Studio is focused on delivering outstanding value to its customers online. The same approach has now been adopted by Education as part of its turnaround.

Our expectations for the full-year and the medium-term remain unchanged.

FINANCIAL REVIEW

Summary income statement

* this is an Alternative Performance Measure, for which the reconciliation to the equivalent GAAP measure can be found below.

Borrowings and finance costs

The seasonality in the Group's businesses mean that core net debt* is at its peak around the half-year point. Core net debt* stood at £80.9m at the end of September 2018, down by £9.1m from September 2017 despite continued growth in Express Gifts' credit receivables.

Express Gifts' customer refund programme is nearing completion and proceeding to plan with a total cash outflow of £5.1m in H1.

Both the revolving bank facility and the securitisation facility that supports Express Gifts' credit receivables have been extended during H1 and will now mature on 31 December 2020. The securitisation facility has recently been restructured with the facility limit being increased to a maximum of £185m, an increase of £15m, to support anticipated growth in the next 12 months. The balance drawn on the securitisation facility stood at £157.0m at September 2018 (September 2017: £146.6m).

Finance costs of £4.7m (September 2017: £4.4m) were incurred in the first half of the year, with the increase caused by higher LIBOR rates on broadly unchanged total borrowings.

Foreign exchange contracts

The Group's policy on hedging its foreign exchange risks remains to cover its planned exposures over the next 12 months on a rolling basis by use of forward contracts. At the end of September 2018, the Group was committed to contracts for $88m, contracted at US dollar exchange rates between £1/$1.44 and £1/$1.25, with maturity dates covering the period to September 2019. The fair value of these contracts at the period end was a net asset of £1.3m. Fair value movements in the first half have resulted in a credit of £5.5m (September 2017: £3.8m charge), which has been recorded in the consolidated income statement.

Taxation

The Group recorded a tax charge of £3.4m in the first half (September 2017 - restated: £1.5m), based on an estimated underlying effective tax rate for the full year of 19.7% (September 2017 - restated: 20.3%).  

Balance sheet

Net assets at the end of September 2018 stood at £34.3m, down by £5.0m from the year end with total comprehensive income in H1 of £12.6m being offset by an adjustment to opening reserves of £17.8m on initial application of IFRS 9 (being the net of a £21.4m increase in the impairment provision for trade receivables in Express Gifts, and the creation of an associated deferred tax asset of £3.6m).

The Group's legacy defined benefit pension scheme surplus measured on an IAS 19 basis was valued at £2.3m, little changed from the year end. The Group is currently working with the scheme's trustees and advisors to assess the impact of a recent High Court decision in relation to Guaranteed Minimum Pension liabilities. It is estimated that the likely increase in liabilities as a result of this judgment will be between 2%-3% of total scheme liabilities, which is expected to be recognised as past service cost in the second half of 2018/19. 

Alternative Performance Measures

The directors use several Alternative Performance Measures ("APMs") that are considered to provide useful information about the performance and underlying trends facing the Group. As these APMs are not defined by IFRS, they may not be comparable with APMs shown in other companies' accounts. They are not intended to be a replacement for, or be superior to, IFRS measures.

The principal APMs used in these Interim Results are set out below.

Adjusted operating profit and adjusted profit before tax

The Group's foreign exchange hedging policy means that there will be unrealised fair value gains or losses at the period end relating to contracts intended for future periods. Those fair value movements are therefore excluded from the underlying performance of the Group until realised.

The reconciliation to both operating profit and profit before tax are as follows:

Adjusted profit before tax on a constant GAAP basis

During the current period, the Group adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers. The full impact of adopting these new accounting standards is detailed in note 2 to the interim financial statements. Management has excluded the impact of adopting these new accounting standards to better demonstrate underlying trends in the Group's trading performance.

Adjusted profit before tax on a constant GAAP basis is calculated as follows:

Bad debt charge on a constant GAAP (IAS 39) basis

During the current period, the Group adopted IFRS 9 Financial Instruments which requires us adopt a 12-month assessment period for possible future losses when calculating the bad debt charge, compared to the incurred loss approach taken under IAS 39. As a result, the current year charge is calculated on a different basis to the comparative figure. Management has therefore excluded the current year impact of IFRS 9 adoption to better demonstrate underlying bad debt performance.

This is calculated as follows:

Express Gifts Product Gross Margin %

This is used a measure of the gross profit made by Express Gifts on the sale of products only, which shows progress against one of Express Gifts' strategic pillars. This is derived as follows:

Net debt

This measure takes account of total borrowings less cash held by the Group and represents our total indebtedness. Management use this measure for assessing overall gearing.

It is calculated as follows:

Core net debt

This measure excludes obligations under finance leases and securitisation borrowings from net debt to show borrowings under the revolving credit facility net of cash held by the Group. This is our preferred measure of the indebtedness of the Group and is relevant for covenant purposes.

It is calculated as follows:

*Disclosed within bank loans

Debt funding consumer receivables

The majority of the trade receivables of Express Gifts are eligible to be funded in part from the securitisation facility, with the remainder being funded from core net debt. This measure indicates the value of trade receivables (before any impairment provision) capable of being funded from the securitisation facility.

It is calculated as follows:

Free cashflow

Free cash flow generation is a key operational metric which forms part of the remuneration targets for the Executive Directors.

Free cash flow is reconciled to cash generated from/ (used in) operations as follows:

Findel plc

Group Financial Information

Condensed Consolidated Income Statement

26-week period ended 28 September 2018

*Earnings before interest, taxation, depreciation, amortisation and fair value movements on derivative financial instruments.

Condensed Consolidated Statement of Comprehensive Income

26-week period ended 28 September 2018

The total comprehensive income for the period is attributable to the equity shareholders of the parent company Findel plc.

Condensed Consolidated Balance Sheet

At 28 September 2018

Condensed Consolidated Cash Flow Statement

26-week period ended 28 September 2018

Condensed Consolidated Statement of Changes in Equity

26-week period ended 28 September 2018

The total equity is attributable to the equity shareholders of the parent company Findel plc.

Notes to the Condensed Consolidated Financial Statements

1. General Information

The condensed consolidated financial statements have been approved by the board on 27 November 2018.

Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union ("EU") and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority. As required by the latter, the interim financial statements have been prepared applying the accounting policies and presentation that were applied in the company's published consolidated financial statements for the 52 weeks ended 30 March 2018. They do not include all the information required for full annual financial statements and should be read in conjunction with the Group's consolidated financial statements as at and for the 52 weeks ended 30 March 2018.

The financial information for the period ended 30 March 2018 is not the company's statutory accounts for that financial year. Those accounts which were prepared under IFRS as adopted by the EU ("adopted IFRS") have been reported on by the company's auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor draws attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under sections 498(2) or (3) of the Companies Act 2006.

Going concern basis

In determining whether the Group's interim financial statements for the period ended 28 September 2018 can be prepared on a going concern basis, the directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowing facilities and the risks and uncertainties relating to its business activities in the current economic climate. The financial position of the Group, its cash flows, liquidity position and borrowing facilities and details of those key risks and uncertainties are set out in further detail in the Finance Review on pages 16 to 18 of the Group's annual report and accounts for the 52-week period ended 30 March 2018.

The directors have reviewed the Group's trading and cash flow forecasts as part of their going concern assessment, including considering the potential impact of reasonably possible downside sensitivities which take into account the uncertainties in the current operating environment, including, amongst other matters, demand for the Group's products, its available financing facilities, and regulatory licensing and compliance. Under certain downside sensitivities, at certain times, the level of facility headroom may reduce to a level which requires cash flow initiatives to be introduced to ensure that the funding requirements do not exceed the committed facilities. Management are confident that such actions are supportable and could be implemented if required. The Group's current banking facilities mature in December 2020.

Taking into account the above circumstances, the directors have formed a judgement that there is a reasonable expectation, and there are no material uncertainties, that the Group and the Company have adequate resources to continue in operational existence for a period of at least 12 months.

Accordingly, they continue to adopt the going concern basis in preparing the Group's interim consolidated financial statements

Risks and uncertainties

The principal risks and uncertainties which could impact the Group's long-term performance remain those detailed on pages 20 to 21 of the Group's annual report and accounts for the 52-week period ended 30 March 2018, a copy of which is available on the Group's website, www.findel.co.uk.

The risks detailed in the annual report and accounts remain valid as regards their potential to impact the Group during the second half of the current financial year.

Brexit

We continue our work to assess and, where possible, mitigate the likely impact of the United Kingdom's exit from the European Union ("EU"). In light of recent political developments, the outcome remains unclear, and it is therefore difficult to enact specific mitigating activities, however our work is focused on the following key risk areas:

· Supply chain - the majority of goods sold by the Group are sourced, either directly or indirectly, from outside the UK, with a high proportion originating from Asia. There is a risk that lead times for the supply of goods may lengthen due to delays at ports caused by a no-deal Brexit scenario. There may also be additional administrative burdens and costs in respect of goods imported from the EU. Since most of our products are sourced from outside the EU, we do not currently expect to see a material change in import tariffs, however to the extent that the UK falls out of any arrangements between the EU and countries from which we import, it is possible that this may lead to additional tariffs becoming payable;

· Foreign exchange - the exit process may prompt a further depreciation in the GBP/USD exchange rate. We continue to hedge our planned USD purchases on a rolling 12-month basis to mitigate the impact of any such depreciation; and

· Colleagues - a significant number of colleagues, particularly within our distribution centres, are non-UK EU nationals. Brexit may result in changes to UK immigration policy which increases the risks around the availability, recruitment and retention of these individuals.

Seasonality

The nature of the businesses within the Findel Group mean that profits have shown, and will continue to show, a significant seasonal bias with the majority of profit being earned in the second half.

2. Accounting Policies

As required by the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority, this condensed set of financial statements has been prepared applying the same accounting policies and computation methods that were applied in the preparation of the Company's published consolidated financial statements for the year ended 30 March 2018, with the exception of those impacted by the adoption of IFRS 9 and IFRS 15, which are described below.

The Group has adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers with effect from 31 March 2018.

IFRS 9

IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement.

i) Classification - financial assets and liabilities

IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. However, it eliminates the previous IAS 39 categories for financial assets held to maturity, loans and receivables and available for sale.

The adoption of IFRS 9 has not had a significant effect on the Group's accounting policies related to financial liabilities and derivative financial instruments. The impact of IFRS 9 on the classification and measurement of financial assets is set out below.

Under IFRS 9, on initial recognition, a financial asset is classified as measured at: amortised cost; fair value through other comprehensive income ("FVOCI"); or fair value through profit and loss ("FVTPL"). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is manged and its contractual cash flow characteristics.

A financial asset will be measured at amortised cost if both the following conditions are met and it has not been designated as at FVTPL:

• the asset is held within a business model whose objective is to hold the asset to collect its contractual cash flows; and

• the contractual terms of the financial asset give rise to cash flows on specified dates that represent payments of solely principal and interest on the outstanding.

Express Gifts' trade receivables that were classified as loans and receivables under IAS 39 are now classified at amortised cost. An increase in the allowance for impairment over these trade receivables of £21,428,000 was recognised in opening accumulated losses at 31 March 2018 as a result. A corresponding deferred tax asset of £3,643,000 was also recognised in accumulated losses at 31 March 2018.

Financial assets classified at amortised cost are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses (see point ii) below). Interest income, foreign exchange gains and losses and impairment are recognised in profit and loss. Any gain or loss on derecognition is recognised in profit or loss.

ii) Impairment of financial assets

IFRS 9 replaces the incurred loss model in IAS 39 with a forward-looking expected credit loss ("ECL") model and therefore materially changes the way in which the Group calculates its provision for impairment in respect of Express Gifts' trade receivables. Under IFRS 9, credit losses are recognised earlier than under IAS 39.

The ECL approach introduces 3 stages:

· Stage 1: Where there is no evidence of significant increase in credit risk since the origination of the financial asset. Stage 1 applies from the initial recognition of the financial asset unless it was credit impaired when purchased or originated;

· Stage 2: Where there is evidence of significant increase in credit risk since origination of the financial asset; and

· Stage 3: Where the financial asset becomes credit impaired.

Under IFRS 9, loss allowances are measured on the following bases:

· 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and

· lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.

A 12-month ECL is used for Stage 1 performing assets and a lifetime ECL is used for stages 2 and 3. An asset will move from Stage 1 to Stage 2 when there is evidence of significant increase in credit risk since the asset originated and into Stage 3 when it is credit impaired. Should the credit risk improve so that the assessment of credit risk at the reporting date is considered not to be significant any longer, assets return to an earlier stage in the ECL model.

The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due, has been placed on an arrangement to pay less than the standard required minimum payment or has had interest suspended.

The Group considers a financial asset to be in default when it is more than 120 days past due and/or when the borrower is unlikely to pay its obligations in full.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis based on the Group's historical experience and informed credit assessment including forward looking information.

Estimation uncertainty

The key assumptions in the ECL calculations are:

· Probability of Default ("PD") - an estimate of the likelihood of default over a given time horizon;

· Exposure at Default ("EAD") - an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by the contract or otherwise and accrued interest from missed payments; and

· Loss Given Default ("LGD") - an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the Group would expect to receive, discounted at the original effective interest rate.

The Group incorporates forward looking information into its measurement of ECLs. This is achieved by developing four potential economic scenarios and modelling ECLs for each scenario. The outputs from each scenario are combined; using the estimated likelihood of each scenario occurring to derive a probability weighted ECL.

Management judgement is required in setting assumptions around probabilities of default and the weighting of economic scenarios in particular which have a material impact on the results indicated by the ECL model.

Presentation

Loss allowances for financial assets are deducted from the gross carrying amount of the asset. Impairment losses related to Express Gifts' trade receivables are presented within cost of sales in the income statement.

Impact of new impairment model

The Group has determined that the application of IFRS 9's impairment requirements at 31 March 2018 results in an additional impairment provision in respect Express Gifts' trade receivables as follows:

The application of the IFRS 9's impairment requirements in the current period has increased the impairment charge by £758,000 vs. the equivalent charge calculated on an IAS 39 basis.

iv) Transition

Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively, except as described below:

The Group has taken an exemption not to restate comparative information for prior periods with respect to classification and measurement (including impairment) requirements. Differences in the carrying amounts of financial assets resulting from the adoption of IFRS 9 are recognised in accumulated losses as at 31 March 2018. Accordingly, the information presented for the periods ended 29 September 2017 and 30 March 2018 do not generally reflect the requirements of IFRS 9 but rather those of IAS 39.

IFRS 15

IFRS 15 replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations, and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards.

The standard introduces a five-step approach to the recognition of revenue as follows:

1. Identify the contract(s) with a customer;

2. Identify the performance obligations in the contract;

3. Determine the transaction price;

4. Allocate the transaction price to the performance obligations in the contract; and

5. Recognise revenue when (or as) the entity satisfied a performance obligation.

The Group has performed a detailed impact assessment, identifying all current sources of revenue in scope of the new standard and assessing their treatment under the five-step model.

The principal impact of adopting the new standard is a change in the point at which revenue is recognised in respect of the supply of products to customers (including delivery charges) from the point of despatch to the point of delivery. This is on the basis that the performance obligations identified in these transactions are the supply and delivery of products and that these obligations are not deemed to be completed until the customer obtains control of the products (i.e. on delivery). The supply and delivery of products are not deemed to be separable performance obligations as the customer is obliged to make use of the Group's delivery arrangements.

The impact of this change is to delay the recognition of revenue (and gross profit) by an average of 1 to 3 days, reflecting the Group's standard delivery timeframes

The Group has adopted IFRS 15 using the fully retrospective method of adoption. Consequently, the comparative Condensed Consolidated Income Statement for the period ended 29 September 2017 and the Condensed Consolidated Balance Sheets at 29 September 2017 and 30 March 2018 have been restated to reflect the requirements of IFRS 15. The impact of adopting IFRS 15 on the current and comparative periods shown is summarised in the following tables.

Impact on the Condensed Consolidated Income Statement and Other Comprehensive Income

Impact on the Condensed Consolidated Balance Sheet

The adoption of IFRS 15 did not have a material impact on the Group's cash flows in either the current or comparative periods.

Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing the interim financial statements, the significant judgements made by management in applying the Group's accounting policies and key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 30 March 2018 with the exception of the calculation of impairment provisions in respective of Express Gifts' trade receivables which has been impacted by the adoption of IFRS 9 as detailed above.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any of the future periods affected.

3. Segmental analysis

26 weeks to 28 September 2018

*Earnings before interest, tax, depreciation, amortisation and fair value movements on derivative financial instruments.

26 weeks ended 29 September 2017 (restated)

*Earnings before interest, tax, depreciation, amortisation and fair value movements on derivative financial instruments.

4. Taxation

Income tax for the 26-week period ended 28 September 2018 is based on an estimated effective tax rate for the full year of 19.7% (26-week period ended 29 September 2017 - restated: 20.3%), giving rise to a tax charge of £3,373,000 in the period (26-week period ended 29 September 2017 - restated: £1,531,000).

5. Earnings per share

* Adjusted to remove the impact of fair value movements on derivative financial instruments.

The earnings per share attributable to convertible ordinary shareholders is £nil.

6. Derivative financial instruments

At 28 September 2018 the Group had outstanding derivative financial instruments as follows:

Non-current assets

Current assets

Current liabilities

Forward foreign exchange contracts

Exchange rate exposures are managed utilising forward foreign exchange contracts. At the balance sheet date, details of the notional value of outstanding US dollar forward foreign exchange contracts that the Group has committed to are as follows:

Forward contracts outstanding at 28 September 2018 are contracted at US dollar exchange rates between £1/$1.44 and £1/$1.25 (29 September 2017: £1/$1.35 and £1/$1.23).

Changes in fair value of forward foreign exchange contracts for the 26-week period ended 28 September 2018 amounted to a credit of £5,469,000 (26-week period ended 29 September 2017: charge of £3,817,000) and have been recorded in the consolidated income statement.

Interest rate cap

Under interest rate cap contracts, the Group agrees to cap the LIBOR element of its interest cost at an agreed level calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of rising interest rates on its variable rate debt.

The following caps were in place at 28 September 2018:

The first cap was purchased on 17 February 2017 and matures in November 2018. The second cap was purchased on 15 March 2018 and matures in November 2019. Both caps were designated as cash flow hedges from inception. The movement in the fair value of interest rate caps during the current and prior period was as follows:

Basis for determining fair values

The fair value of both interest rate caps and forward foreign exchange contracts is their market value at the balance sheet date. Market values are based on the duration of the derivative instrument together with the quoted market data including interest rates, foreign exchange rates and market volatility at the balance sheet date.

The financial instruments held by the Group at the balance sheet date are valued under the Level 2 measurement basis of the fair value hierarchy: (i.e. based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)). There were no transfers between Level 1 and Level 2 during the period.

7. Related parties

During the current and prior periods, the Group made purchases in the ordinary course of business from Brands Inc. Limited and Firetrap Limited, subsidiaries of Sports Direct International plc, which is a significant shareholder in the ultimate parent company, Findel plc. The value of purchases made in the current and prior periods and amounts owed at 28 September 2018 and 29 September 2017 were as follows:

Brands Inc. Limited

Firetrap Limited

Transactions between Findel plc and its subsidiaries, which are related parties of Findel plc, have been eliminated on consolidation and are not discussed in this note. All transactions and outstanding balances between group companies are priced on an arms-length basis and are settled in the ordinary course of business.

8. Events after the Reporting Period

On 26 October 2018, the High Court handed down a judgment involving the Lloyds Banking Group's defined benefit pension schemes. The judgment concluded that the schemes should be amended to equalise pension benefits for men and women in relation to guaranteed minimum pension benefits. The issues determined by the judgment arise in relation to many other defined benefit pension schemes. We are working with the trustees of our pension schemes, and our actuarial and legal advisers, to understand the extent to which the judgment crystallises additional liabilities for the Findel Group Pension Fund. It is estimated that the likely increase in liabilities as a result of this judgment will be between 2%-3% of total scheme liabilities, which is expected to be recognised as past service cost in the second half of 2018/19.

Responsibility Statement

We confirm that to the best of our knowledge:

(a) the condensed consolidated financial statements have been prepared in accordance with IAS 34

Interim Financial Reporting as adopted by the European Union;

(b) the interim management report and condensed consolidated financial statements include a fair review of the information required by:

(i) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(ii) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

This document may contain forward looking statements. In particular, but without limitation, nothing contained in this document should be relied upon or construed as a promise or a forecast, including any projection or management estimate, any statements which contain the words "anticipate", "believe", "intend", "estimate", "expect", "forecast" and words of a similar meaning, reflect the management of the company's current beliefs and expectations and are subject to risks and uncertainties that may cause actual results to differ materially. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on such statements. Any forward-looking statements speak only as at the date of this document, and except as required by applicable law, Findel plc undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information or otherwise.

INDEPENDENT REVIEW REPORT TO FINDEL PLC

Conclusion

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the 26-week period ended 28 September 2018 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated cash flow statement, the condensed consolidated statement of changes in equity and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 26-week period ended 28 September 2018 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Nicola Quayle

for and on behalf of KPMG LLP

Chartered Accountants

1 St Peter's Square, Manchester, M2 3AE

27 November 2018